(Jan 24, 2011) On January 18, 2010, the European Court of Human Rights (ECtHR), in MGN Limited v UK (application 39401/04) delivered a landmark decision criticizing Conditional Fee Agreements (CFAs) as currently regulated under the law of the United Kingdom. The Court found that the recovery of "success fees" from the loser over and above the winner's actual legal costs in certain privacy and defamation suits amounted to a violation of article 10 (freedom of expression) of the European Convention on Human Rights (ECHR) (Convention for the Protection of Human Rights and Fundamental Freedoms, CETS No. 005, Council of Europe website, http://conventions.coe.int/treaty/Commun/QueVoulezVous.asp?NT=005&CL=ENG [click on links for the text and for the list of signatures and ratifications] (last visited Jan. 11, 2011).)

The case was brought before the ECtHR after a UK House of Lords' ruling had found in favor of the celebrity Naomi Campbell in a libel action against MGN Limited (Mirror Group newspapers), the parent company of the British national newspaper The Daily Mirror. The House of Lords found that publishing pictures and articles detailing Naomi Campbell's visits to Narcotics Anonymous meetings was a breach of her privacy. As a result, the Law Lords awarded the claimant damages and recovery of all legal costs.

Claimant Campbell had hired her lawyers under a CFA, which is typically structured so that all or certain legal fees are only payable if the lawsuit is successful. In the UK, CFAs are commonly known as "no win no fee" arrangements. If the client does win, however, then the lawyer is entitled to his normal fees, based on the hourly rate, and a "success fee," which can be up to 100% of the actual legal costs. The original intent of the arrangements was to make access to justice easier for individuals who cannot typically afford the legal fees that can be incurred during civil suits. Lawyers who normally charge higher rates increasingly began to use such arrangements with wealthier clients, with the expectation of a higher recovery. Clients under a CFA have no incentive to limit legal costs, given that if they win the case most or all costs would be recoverable from the other party. In the Campbell case, the Law Lords controversially ruled on costs exceeding £1million (about US$1.6 million), which included success fees of more than £365,000. In 2005, the Law Lords had dismissed an appeal by MGN Limited objecting to the high success fees.

In balancing the public interest in publishing the story against protecting Campbell's right to privacy, the ECtHR found that the actions of MGN Limited were disproportionate and therefore a breach of her privacy. However, more significantly, the ECtHR held that the success fees the Law Lords awarded did amount to a curtailment of MGN Limited's freedom of expression rights. The judges concluded, "[t]he requirement on Mirror Group Newspapers to pay the 'success fees,' which had been agreed by Ms Campbell and her solicitors, was disproportionate to the aim sought to be achieved by the introduction of the 'success fee' system." According to the ECtHR, CFAs were originally designed to help improve access to justice for potential litigants who could not afford lawyers. Campbell, who is particularly wealthy, could easily have covered her legal costs, the ECtHR held, while the potential of being liable for excessive costs can place undue pressure on the defendant to settle early even if the defendant's case is on the whole strong. Wary of the potential high costs of litigation, small organizations and companies who cannot afford such legal costs may have no real choice but to settle early, the Court opined.

The ECtHR further stated that a claimant operating under a CFA, on the other hand, does not have to worry about legal costs, whether the claimant wins or loses. The Court felt that such exorbitant success fees, particularly in privacy and defamation suits, could have a "chilling effect" on media reporting. Therefore, the ECtHR held that the effect of certain CFAs on defendants in civil cases can be a violation of article 10 of the ECHR. The decision is said to place further pressure on the UK government to reform the use of CFAs in the English legal system. (Press Release, No. 29, Obligation on Publisher of "The Daily Mirror" to Pay "Success Fees" in a Breach of Privacy Case Found to Be Excessive, Registrar of the ECtHR (Jan. 18, 2011), http://cmiskp.echr.coe.int////tkp197/viewhbkm.asp?action=open&table=F69A27FD8FB86142BF01C1166DEA398649&key=88012&sessionId=65104786&skin=hudoc-pr-en&attachment=true.)

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